The Congressional Budget Office (CBO) estimated that a 10-year extension of the Children’s Health Insurance Program would cut $6 billion from the deficit, since the program allows the federal government to avoid paying higher costs for alternate insurance obtained through federally-subsidized marketplaces (CBO Report, January 11, 2018).

The CBO and Joint Committee on Taxation had previously estimated that a five-year renewal for CHIP would add $0.8 billion to the deficit, down from its previous estimate of $8.2 billion. The change stems from Congress’s repeal of the Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148) individual mandate. Without CHIP, parents would be more likely to seek federally-subsidized coverage offered through health insurance marketplaces set up by the ACA, and CBO expects that the individual mandate’s repeal will lead to lower enrollment and higher costs in those marketplaces (see Eliminating individual mandate lowers cost of CHIP funding, Health Law Daily, January 8, 2018).

A longer CHIP extension, through S. 1827 the Keep Kids’ Insurance Dependable and Secure Act of 2017, would yield even higher net savings, the CBO said in response to a question by Rep. Frank Pallone Jr. (D-NJ). The KIDS Act would increase the deficit from 2018 to 2020, and decrease the deficit every year thereafter, because the federal matching rate for CHIP would decline from an average of 93 percent in 2019 to 70 percent in 2021 and subsequent years. Under the KIDS Act, the federal costs of insuring children through CHIP would decline as states pick up more of the costs, and would allow the government to avoid paying higher costs for alternative coverage through the marketplaces, Medicaid, and employment-based insurance.

The Congressional Budget Office (CBO) lowered its estimate of the deficit impact of legislation that would fund the Children’s Health Insurance Program (CHIP) for five years, finding that CHIP had become less expensive relative to the rising costs of providing alternative coverage through the federally-subsidized health insurance marketplaces (CBO Report, January 5, 2018).

Prior estimate

The CBO and the Joint Committee on Taxation previously reviewed S. 1827, the Keep Kids’ Insurance Dependable and Secure Act of 2017, in October, finding then that it would add $8.2bn to the deficit. The new estimate finds that the bill, which would also change the federal matching rate for the program and state eligibility requirements, would only increase the deficit by $0.8 billion over the next ten years.

Individual mandate

The change stems from Congress’s repeal of the Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148) individual mandate. Without CHIP, parents would have to seek alternative coverage, including federally-subsidized coverage offered through health insurance marketplaces set up by the ACA. Without the individual mandate, the CBO expects lower enrollment and higher costs for the insurance marketplaces, which increases the federal cost of enrolling a child in coverage through the marketplaces. The rising marketplace costs make CHIP a more cost-effective alternative to funding children’s health costs, the CBO found.

Without congressional action, authorization for the Children’s Health Insurance Program will end on September 30, 2017, with the end of fiscal year (FY) 2017. Cuts to disproportionate share hospital (DSH) payments are also scheduled to take effect on October 1, 2017. If the authorization lapses and the cuts take effect, states will face budget shortages in their attempts to keep the CHIP program solvent and DSHs, which already operate on tight budgets, will be exposed to greater financial strain. A number of other health care related provisions are also slated to lapse on September 30, 2017, if Congress does not act, according to a Congressional Research Service (CSR) report.

Action

On September 28, 2017, the Energy and Commerce Committee announced that it would markup a bill to extend funding to the CHIP program. On the same day, members of Congress authored a letter to House Speaker Paul Ryan (R-Wis) and Democratic Leader Nancy Pelosi (D-Calif) expressing concerns regarding the impact of the DSH cuts and calling for congressional action.

DSH cuts

Stakeholders have made ongoing attempts to procure action from Congress to delay the DSH cuts. On September 18, nine hospital organizations urged lawmakers to further delay the start of Medicaid DSH cuts authorized by Section 2551 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) (see Hospital organizations again advocate for delay of Medicaid DSH reductions, September 19, 2017). The cuts would have gone into effect in 2014 but legislation delayed the reduction. The reduced payments were designed to account for decreases in uncompensated care, yet, DSHs warn that planned increases in coverage rates under the ACA have not been realized, exposing providers to unfair payment reductions.

CHIP

Although the impact of a delay in CHIP reauthorization will differ from state to state, a Kaiser Family Foundation analysis revealed that “states would face budget pressures, children would lose coverage, and implementation of program changes could result in increased costs and administrative burden for states” if Congress does not reauthorize the CHIP program by the end of FY 2017 (see States face budget shortages if Congress doesn’t extend CHIP funding, September 11, 2017).

“Without federal funding [for the Children’s Health Insurance Program (CHIP)], states would face budget pressures, children would lose coverage, and implementation of program changes could result in increased costs and administrative burden for states as well as confusion for families,” according to a Kaiser Family Foundation (KFF) report published on September 6, 2017. Federal funding for CHIP is set to expire on September 30, 2017. The KFF report provides an overview of states’ plans for CHIP in light of the uncertainty about the future of federal funding and describes how the lack of federal funding will impact states and how children and their families will be affected.

States’ CHIP programs

States can provide CHIP through a separate CHIP program, a CHIP-funded Medicaid expansion, or a combination of the two approaches. If federal funding ends, states with separate CHIP coverage would not be required to maintain coverage. Under the Patient Protection and Affordable Act (ACA) (P.L. 111-148); however, states with CHIP-funded Medicaid expansions or a combination of both approaches would be required to maintain this coverage under the maintenance of effort requirement (see ACA sections 2001, 2101, 10203). Without federal funding, states’ costs would increase, KFF predicted.

Findings from surveys of states

KFF and Health Management Associates surveyed state Medicaid officials about their current budgets and their future plans for the CHIP program.In addition, KFF, along with the Georgetown University Center for Children and Families, conducted interviews with several state CHIP directors.

Key findings include:

Forty-eight out of 50 responding states, including the District of Columbia, assumed continuation of federal CHIP funding in the fiscal year (FY) state budgets. Thirty-four states assumed the funding would continue with the 23% enhancement that was included in the ACA.

Because states assumed continued federal funding in their state budgets, the majority of the states will face a funding shortage if federal funding is not extended. KFF noted that because state budgets have passed, addressing shortfalls will likely require special legislative sessions and/or governor action. Challenges include replacing federal dollars, costs of implementing program changes as well as system changes, outreach and training costs, and costs to close out the program.

Ten states estimated that they would exhaust their FY 2017 CHIP allotment by the end of 2017. Thirty-two states projected they will exhaust their federal funding at the end of March of 2018.

The majority of states have not developed plans for actions they would take if Congress does not extend funding but some plan to close or cap enrollment and/or discontinue coverage for children in separate CHIP programs. A few states have state statutes that require them to close CHIP and discontinue coverage if federal funds for CHIP decrease. In a few states, CHIP-funded coverage for other groups such as pregnant women and children in buy-in programs would be at risk for cutbacks.

Impact of loss of CHIP coverage

If states close enrollment or discontinue coverage for children in separate CHIP programs, some children would be uninsured but others could shift to parents’ employer-sponsored plans or Marketplaces plans. Previous enrollment caps and freezes that were a result of state budget pressures, led to coverage losses, left eligible individuals without access to coverage and had negative effects on children’s health and family finances, according to KFF. When enrollment was frozen in Arizona, some children were moved to Medicaid, but six in ten likely were uninsured and the uninsured rate grew following the freeze. In North Carolina, the number of children placed on a waiting list rose to over 34,000. Parents with children affected by the freeze reported that the children needed care during the period they were uninsured. They reported delaying or difficulty in obtaining care for the children, difficulties in obtaining prescription medications for their children, and significant financial hardships.

Actions to prepare for lack of federal funding

States need sufficient time to notify families and other stakeholders of the changes in coverage, make changes to eligibility systems, and train eligibility workers. They must also update contracts with managed care plans and third party administrators and submit necessary state plan amendments. States also must be aware that the steps they take to prepare and costs that they incur may be wasted if they begin to implement the change and Congress takes action after the deadline to extend funding.